Correlation Between Diageo PLC and FP Newspapers

Can any of the company-specific risk be diversified away by investing in both Diageo PLC and FP Newspapers at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Diageo PLC and FP Newspapers into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Diageo PLC ADR and FP Newspapers, you can compare the effects of market volatilities on Diageo PLC and FP Newspapers and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Diageo PLC with a short position of FP Newspapers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diageo PLC and FP Newspapers.

Diversification Opportunities for Diageo PLC and FP Newspapers

0.1

Correlation Coefficient

Diageo PLC  FP Newspapers

Average diversification

The 3 months correlation between Diageo and FPNUF is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and FP Newspapers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FP Newspapers and Diageo PLC is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Diageo PLC ADR are associated (or correlated) with FP Newspapers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FP Newspapers has no effect on the direction of Diageo PLC i.e., Diageo PLC and FP Newspapers go up and down completely randomly.

Pair Corralation between Diageo PLC and FP Newspapers

Considering the 90-day investment horizon Diageo PLC ADR is expected to generate 0.17 times more return on investment than FP Newspapers. However, Diageo PLC ADR is 5.93 times less risky than FP Newspapers. It trades about 0.32 of its potential returns per unit of risk. FP Newspapers is currently generating about -0.22 per unit of risk. If you would invest  11,985  in Diageo PLC ADR on September 15, 2024 and sell it today you would earn a total of  1,160  from holding Diageo PLC ADR or generate 9.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Diageo PLC ADR  vs.  FP Newspapers

Diageo PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diageo PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Diageo PLC is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

FP Newspapers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FP Newspapers has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Diageo PLC and FP Newspapers

The main advantage of trading using opposite Diageo PLC and FP Newspapers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diageo PLC position performs unexpectedly, FP Newspapers can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in FP Newspapers will offset losses from the drop in FP Newspapers' long position.

The idea behind Diageo PLC ADR and FP Newspapers pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.